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Quiznos New Growth Plan Flawed

DENVER—Quiznos’ latest plan to grow its business is drawing criticism from experts and some say rightfully so.The troubled sub-sandwich franchise known for its fast growing tactics announced recently that it was adding 600 new stores by year-end, after losing almost 1,000 restaurants over the past few years. But some insiders are saying the company has only opened 30 so far and 150 will probably be the most they can achieve.

According to The Columbus Dispatch, the Denver-based franchise is now revealing its new plan to lure franchisees by cutting its initial fee for opening a restaurant. Instead of its usual $25,000, franchisee prospects will be offered $5,000 to open stores. The company will then give franchise owners a two- to five-year loan of $65,000 at 15 percent for working capital.

An article on bnet.com last Friday states that while the loan is being paid off, the owner gets a salary from Quiznos in the low five figures—less them $24,000—plus 20 percent of restaurant profits. It said, “This is a pretty harsh work-to-own plan that seems only a half-step from indentured servitude, given that restaurant owners can easily put in 80-hour weeks, and restaurants can take a year or two to start showing a profit.”

The reporter states that this plan is sure to lure more would-be franchise owners, but not the right kind. “Often, franchisees who come in on this type of cheap deal don’t really have the capital required to invest in their stores and deal with the cash-flow potholes that inevitably appear in the restaurant business. The failure rate is bound to be higher for these new franchises. The company gets a short-term bump in its store-count, but it may be temporary,” she said.

The article reveals another initiative by Quiznos that involves opening small, 400-square-foot grab-and-go eateries inside convenience stores. It explains, “This plunges Quiznos into an area where it has little expertise — it has just three company-owned stores now. It could also put the corporate parent into competition with franchisees. Given the dark history between Quiznos and its store owners, who are close to inking a settlement to their long-running class-action lawsuit against Quiznos, this seems like a bad idea.”  The reporter advises that those considering the “cheap-entry franchise deal” might earn more as managers at Quiznos’ company-owned units, save their money, and then buy a franchise.

But she adds that the biggest problem with the turnaround plan is that it does nothing to fix the most basic problems with Quiznos’ business model. She says rather than “just flinging open hundreds of new stores, Quiznos needs to look at how it does business, and make sure its model is designed to make franchise owners successful.”

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